Lufthansa’s New CEO Opens Old Wounds in Bemoaning Gulf Challenge

Deutsche Lufthansa AG (LHA)’s new chief executive officer identified the menace of fast-expanding Gulf carriers such as Dubai-based Emirates as his biggest challenge, threatening to reopen a war of words with Mid-East operators.

Carsten Spohr, who takes over from Christoph Franz as CEO of the German company on May 1, said the emerging long-haul heavyweights represent a different proposition to short-haul discount operators such as Ryanair Holdings Plc.

“Those we can handle, they are on a level playing field,” he told an impromptu press conference at Lufthansa’s annual investor meeting in Hamburg, where he’d didn’t directly address shareholders. “With the Gulf carriers, it’s different.”

Spohr’s comments come after Franz singled out German aviation taxes, night-time runway closures and a European Union emissions levy as among measures making it tough for Lufthansa to compete during his time as chief. The outgoing CEO has also complained that the likes of Emirates directly serve the Gulf’s strategic goals and that Europe should be more forceful.

Spohr, 47, plans to develop his strategy for Cologne-based Lufthansa in fewer than 100 days in time for the traditional July 7 summer break, though there could be some interim announcements very soon, spokesman Andreas Bartels said.

Sweet-Spot

The carrier is already remodeling all European flights outside Frankfurt and Munich around its Germanwings low-cost arm to meet the challenge of Ryanair and EasyJet Plc.

Combating the growth of Emirates, Qatar Airways Ltd. and Abu Dhabi-based Etihad Airways PJSC may prove tougher, with the state-owned carriers spending vast sums on wide-body fleets based at new airport facilities that exploit the Gulf’s position at a sweet-spot for intercontinental travel.

Other leading European carriers have moved closer to the Gulf majors after concluding that out-and-out conflict would be futile. Air France-KLM Group is developing an accord with Etihad, the No. 1 investor in Germany’s Air Berlin Plc (AB1), and British Airways swelled the Oneworld group by recruiting Qatar Air, where CEO Akbar Al Baker said Lufthansa had shunned Gulf carriers and lost a “very lucrative alliance chess game.”

Lufthansa’s plan for a pact with Turkish Airlines (THYAO) or Turk Hava Yollari AO, which is building a hub in Istanbul to rival those of London, Paris and Frankfurt, failed to produce a deal. Chief Financial Officer Simone Menne said a year ago in New York that the company might even set up a long-haul, low-cost venture to fight the Gulf and sustain market share to Asia.

Pilot Talks

Spohr’s most immediate challenge is to settle a dispute with pilots that has already cost the carrier $100 million this year after a strike grounded planes, jeopardizing profit goals.

Himself a licensed Airbus Group NV A320 captain, Spohr said talks took place with the Vereinigung Cockpit union last week, with more scheduled for early May.

Franz, who will become chairman of Switzerland’s Roche Holdings AG, the biggest maker of cancer medicines, initiated an efficiency drive aimed at tripling Lufthansa’s operating profit by the end of 2015 through more than 3,500 job cuts, reduced employee benefits and an exit of failing businesses.

Lufthansa shares have added 22 percent under Franz’s three year, four-month tenure, though they turned positive only after he announced his departure on Sept. 16. British Airways parent International Consolidated Airlines Group SA (IAG) added 48 percent in the period, while Air France (AF) stock declined 20 percent.

To contact the reporter on this story: Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Christopher Jasper

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